May 18, 2024


Mad about real estate

Mortgage Refinance Down to 2{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} With Obama's Housing Affordability Plan

Details of a home affordability stimulus plan have recently been released by Obama’s new administration indicating that as many as 1 in 9 homeowners could be helped to avoid foreclosure and have easier access to ways of refinancing their home even if the money they owe on it is more than the value of their house.

The details of the new stimulus plan had to be carefully constructed so that it did not appear as though homeowners who had been reckless in their purchasing were being rewarded after the housing boom had collapsed. With $75 billion dollars going towards sorting out housing and mortgage problems from a total stimulus of $787 billion overall it had to be clear that it was not a rescue package for anyone who had deliberately defaulted on payments and that they were up to date with their current mortgage payments.

There are options available for people who have had problems meeting payments but not the mortgage refinance option. The reason for this is that Obama wanted to help as many homeowners having problems as possible so by providing options for people who haven’t been able to keep up payments, the stimulus plan could benefit up to 9 million home owners, this is believed to be approximately 3 million more than if mortgage delinquents were excluded.

There are 2 elements to the stimulus package for mortgage help:

The first element revolves around loan modifications schemes where a borrower’s current lender is approached to rearrange the terms of the mortgage in order to reduce repayments to a level that means they will not be paying total monthly payments that exceeds more than 31{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} of their gross income. This would be achieved in various ways, including extending the period of the loan and/or reducing the interest on the loan, in some cases to as little as 2{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4}.

Clearly for lenders to participate they are being offered incentives from the stimulus plan scheme, but there is a little more to it than that, due to the sheer volume of potential foreclosures they need an alternative to simply taking ownership of more and more houses that they cannot sell and consequently recover the debt from. That may mean that the profits from the new arrangements may be much less than before the loan modification, but from a business perspective this is better than having another house on their books that they cannot recover the balance of the loan from.

A key point of loan modification is that they do not want to offer better terms to people who are meeting their repayments so anyone applying will have to be able to demonstrate that they cannot continue to make their current payments without assistance.

The second element revolves around mortgage refinancing where your current mortgage is paid off in full and a new mortgage agreement is drawn up with new terms. Anyone with a mortgage through or guaranteed by Freddie Mac or Fannie Mae is entitled to mortgage refinancing as long as they meet the other qualifying criteria e.g. the mortgage amount cannot be more than 105{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} of the value of the home.

Obama’s ‘make home affordable’ plan should help millions of homeowners facing foreclosure reduce their monthly payments and save them hundreds if not thousands of dollars on their repayments, with incentives to borrowers also available you could find yourself saving your home from repossession and benefiting financially in the process.